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Self Employed Mortgages, Getting Started & What To Expect When Applying
May 19, 2020 | Posted by: Jeffrey Kioussis
Getting Started & What To Expect
You have already discovered that your mortgage process is somewhat different than a conventional mortgage. You are wanting to understand what you need to do to get started and what you should be expecting. Here is a brief, outline of what you should to expect with a bit of explanation to start.
As we explained in our previous article, Self Employed Mortgages Explained we both understand that your income is very different than what you declare on your taxes. We also understand that some expenses that you have written off are not actual business expense. We can also appreciate that if you get paid by cash…well let’s not even open that door…let’s just agree that component is understood. Bottom line, we understand that your goal is to pay as little tax, legally, as possible and that your income is higher, usually, than your NOA states.
What we understand is lenders view BFS mortgage’s as higher risk because the same reasons mentioned above to a degree. A traditional lender can only look at what is documented and provided to them. For a better understanding of what lenders look at, check out our post Through A Mortgage Lender Eyes for more insight. The decision to finance or not is completely placed on documentation, formula’s and risk levels. Please remember, your goal has been, to a degree, to declare as little as possible while in turn utilizing tax breaks such as write offs & expenses as much as possible. What this does, of course, is it really puts things out of sorts on paper. Your income is as much as your expenses and your business has consecutively profited next to nothing. Your debt load is way to high and your income cannot support a repayment of anything else let alone a mortgage...on paper at least.
Now, we need to bridge that gap. There are a variety of ways and a multitude of lenders that will be understanding to your special situation. Lenders know that…here is what you need to be prepared for though…
- You will be asked to provide more personal documentation than a typical mortgage
- You will have to provide business documentation
- You will be subject to higher interest rates as compared to a conventional mortgage
- You could be required to provide additional documents such as a self-declared income (SDI) form
Ok great…now that you have a better understanding of what to expect, lets begin with what you will need to get started…
The cornerstones that all lenders will require from all borrowers are:
- Social Insurance Numbers (SIN)
- Valid copies of photo ID
- 2-3 years of tax forms
- 2-3 years of NOA
- Proof of alternate sources of income (rental income, investment, pension, etc.)
- Information on existing mortgage, if any exist
- Net worth statement / asset information
- Lawyer information
- Banking information
- If divorced or separated, copy of separation agreement
- Recent property tax bill
- Void cheque
- Property information (appraisal in some cases)
- Property insurance policy information
Additionally, for self-employed persons
- 2-3 year’s T1 general
- 6-12 months business bank account history (Bank Statements)
- If Incorporated, copies of articles of incorporation
- If proprietorship, copy of master business licence
- 2 year’s corporate financial statements
- Account/book keeper information
Wow you might be thinking now…that’s a ton of information. Your right, it is…that’s why it is important to utilize a licenced mortgage professional
when getting your package together. All of that information must be compiled, explained and presented to lenders to obtain your financing.
Wait, there is more. Each lender will have their own requests and will be different for every individual. Documents that could be requested above and beyond are:
- SDI (Self Declared Income Form) which will be different for each lender
- Business lease & agreements
- Business invoices / HST Information
- Corporate tax information/corporate tax returns (T2)
Please note, lenders could request further information during their processes as well. As every mortgage is different so are the requirements and requests. Remember, if you are completing a purchase, the process is the same with the addition of the purchase/down payment information as well.
The reason for all of those documents and information is to validate all that you are saying is true. Remember, you are requesting to borrow a large sum of money from an entity that does not know you. Wouldn’t you want to make sure all that has been presented is real?
Although the task at hand might seem daunting, it is the reality and all lenders, excluding certain private lenders, will request the same.
So, by this time in the process YOU have completed the following:
1. Contacted a mortgage professional to help with the process.
2. Organized the items and documents you require.
3. Submitted your application with your mortgage professional.
4. Retained necessary services required by your lender to complete the process.
5. Provided additional information your lender has requested.
Your MORTGAGE PROFESSIONAL has also completed the following on your behalf:
1. Organized, prepared, and completed your application.
2. Obtained your credit report and discussed what is visable in your report with you.
3. Scrutinized, reviewed, organized and validated your information & documents.
4. Has made sure additional income not noted on your NOA has been validated and made acceptable to lenders. Items such as SDI forms or validation of banking records have been completed.
5. Packaged your request, painted your picture for lender review and submitted to lenders.
6. Relayed and answered all questions and requests from your lender.
7. Provided you with a Conditional Letter awaiting your approval which outlines the mortgage details including rate as well as explained the details.
8. Arranged all parties involved in communications and fulfilments (such as lawyers, insurers & appraisers) to get your mortgage funded.
Once all this has been completed and if you agree to the conditions provided by the lender this is sent off to your lawyer to complete the process of due diligence and funding. Funding date is determined well in advance of course. Once all has been agreed upon, fulfilled and funded the money is directed to the appropriate channels as you have discussed with your lawyer.
So, there you have it, that is a general overview of your process as a self-employed professional.